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What does a bookkeeper do at tax timeWhat are tax-ready financials and why should your bookkeeper


What are tax-ready financials and why should your bookkeeper be able to prepare them.


hiring a bookkeeper
bookkeeper vs. accountant


When hiring a bookkeeper to handle your day to day financial transactions for small business owners who has the ability of handling accounts, financial records, softwares such as weave , quickbooks online, xero have made it easier to quickly print financial statements.

Business owners won't truly know how great their bookkeeper is until it's tax time and their accountant hands them the bill and there are either little to no clean up work in the books or there are a lot. If you hired a bookkeeper, your bill will have lots of charges. If you hired a bookkeeper who is an accountant as well, your bill will be smaller.

An experienced bookkeeper that has been working closely with tax preparers, at tax time, will have the same amount of knowledge as an experienced accountant. However, when we say tax-ready financials, we mean preparing financial statements that have gone through the steps below by a professional bookkeeper or accountant, and are ready to be used to by your outside CPA/EA/ or tax preparer without much hassle. After-all, their job is to ensure that your taxes are filed efficiently and to have time to look at the bigger picture to ensure all tax saving strategies have been covered.

The following are some of the steps your bookkeeping services should cover:

The beginning balances match prior year

At tax time, tax preparers require the following financial reports in order to prepare your return: a Profit & Loss, Balance Sheet, and General Ledger. The first thing they check is whether the beginning balances of your balance sheet match your prior tax return. If you have an excellent bookkeeper who is knowledgable enough to know that once you submit financials for tax preparation, they will make sure no other transactions change your financials for that period, even if they are within that period.

Let's say you submitted your financials on 1/15/2023 and your return for the ending period of 12/31 were finalized.

There are a lot of ways to change your prior year financials with one of them being, your bank accounts closing dates are 12/15 of each month. Some bookkeepers assume their job is done since they've reconciled the last statement of the year. However, clearly transactions from 12/16-12/31 are still missing. This one is catchable by your accountant, if they take a look and see a lot of missing transactions after 12/15. A good bookkeeper would know that these transactions should not be added with a December date of the prior year, rather they should be changed to January 1st of the next year. And they should have a memo to note that these transactions came in after the return was prepared.

Another way would be if bills and or invoices were entered with a December date of 2022, instead of 01/01 of the next year. This will change your Accounts Payable and Receivable accounts.

I've seen some bookkeepers delete outstanding checks, instead of reclassifying them.

So what happens if you or your bookkeeper add a bunch of transactions after your return has been prepared as of 12/31 of last year? You change the financials of the prior period, which means your tax accountant has to spend time to find what all was added after they got the financials to prepare your return. This could take a small amount of time if it's only a few transactions or, it could take a long time if it's a lot. In that case, this will cost you in billable hours. And to be frank, it's one of my pet peeves as a tax preparer. If we prepared your return using your financials as they are, your return will not balance, and that's an inconvenience no tax accountant wants to deal with. Specially, if there were clear instructions to close the books/period and not make any changes.

They match the payroll to the year-end forms

Payroll data can be a bit tricky to enter in your accounting software if not done correctly. For one, each payroll company runs payroll differently. Some pay the liabilities right away, some pay them after the payroll period is over. The important part is that your bookkeeper knows to book the split between wages, employer tax expense, employee tax liability, and what clears your bank account correctly. If not not done correctly, at the end of the year, your year end forms such as form W-3 ( which shows the total cost of wages and taxes withheld, forms 941 and 940, will not match the split correctly.

We see this a lot and in most cases, the bookkeeper has booked all transactions as an expense on your Profit & Loss, instead of booking the liability correctly so that it does not affect your P&L but rather your Balance Sheet. And Ideally, the payroll liability account should be 0'd out after each payroll period.

Another common mistake that happens is that payroll expenses are not accrued for correctly. For example, if your last pay period is for 12-25 through 01/05 of the next year, payroll expenses and liabilities need to be split and booked correctly to allocate only 2022 expenses to the Profit & Loss and the rest to be booked as a liability to clear the next year.

In addition to the above, we also do the following to ensure all of your financial data is booked correctly:

  • the inventory number on the balance sheet should be confirmed to match the physical inventory count.

  • Examine and confirm large purchases for capitalization requirements.

  • Identify aging accounts receivable and payable balances that can be written off or collected.

  • Ensure that other current liabilities, including payroll and sales tax, loan balances are reconciled and or adjusted in a timely manner. And that principal and interest of loans are split and booked correctly as interest expense on your Profit & Loss, and the principal applied against your loan balance.

  • Review the owner's or shareholder's equity accounts to ensure that business versus personal expenses are booked correctly.

One of the benefits of signing up with us for your bookkeeping needs is that your bookkeeper is also your tax accountant, so you know you're in great hands!


Leave us a comment, or contact us for a free consultation.

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